NLC corporate governance framework

he NLC’s corporate governance framework embodies the Lotteries Act No. 57 of 1997 as amended, the PFMA, principles contained in the Companies Act and King IV code, as well as best practice processes and systems that enable the Commission to meet corporate governance expectations, as well as provide direction and control while supporting accountability.

The Minister of Trade and Industry, in his capacity as the Executive Authority of the NLC, exercises oversight in accordance with provisions of the PFMA. The NLC complied with all reporting requirements of the PFMA and Treasury Regulations Compliance Schedule through the submission of quarterly reports, management accounts, income and expenditure statements with projections, the AFS, budget of estimated revenue and expenditure, strategic and annual performance plans, a fraud prevention plan and a risk management plan within the stipulated periods as indicated under the PFMA and Treasury Regulations Compliance Schedule.

Parliament, through the Portfolio Committee on Trade and Industry (Portfolio Committee), exercises oversight of the service delivery performance and commitments made in terms of the NLC’s strategy and annual performance plan. As part of stakeholder management, the NLC engaged with the Minister and the Portfolio Committee.

The Board Charter

The Board Charter was reviewed in March 2020 with an effective date of 1 April 2020. The Board Charter guides the Board with respect to their functions, powers and responsibilities. The comprehensiveness and effectiveness of the Charter was put to the test in the current financial year when the term of office of the Chairperson came to an end on 30 November 2020. The Board continues to navigate its activities through election of one of its own members present at meetings to preside over Board meetings.

Overview of the Board’s statutory duties

Over and above the responsibility for setting the strategic direction of the NLC, finance and performance objectives, the Board has applied the principles of openness and transparency in fulfilling its statutory duties to:

Board appointments

All Non-executive Board members are appointed by the Minister of Trade and Industry, in accordance with section 3 of the Lotteries Act as amended. The Minister appoints a Chairperson, who shall be a person with relevant knowledge or experience with regard to matters connected with the functions of the Board. Furthermore, one member designated by the Minister and not more than five members who have proven business acumen or applicable knowledge or experience with regard to matters connected with the functions of the Board, and of whom at least one should be a legal practitioner admitted to practice in the Republic and at least one a chartered accountant in the Republic. The Lotteries Act further stipulates that at least four members shall be persons who are not in the service of any sphere of government. The Board currently has two vacant position. The positions of the Chairperson and Board member remain vacant.

The Commissioner is an ex-officio member of the Board and is a member of the Institute of Directors South Africa (IoDSA). The approved organisational succession plan continued to be implemented and monitored during the year under review.

Independence

All Non-executive Board members are considered to be independent as they have no material interest in the NLC, the National Lottery operator, beneficiaries or suppliers. Members are required to complete an annual disclosure of interest and required to disclose interest at every meeting to ensure that circumstances that may give rise to a conflict of interest are managed and monitored effectively.

There were no conflicts of interest identified during the reporting period.

Board induction and continuous development

Board development sessions were convened during the year to ensure that all Board members are appraised on the functions of the Board and operations of the NLC. The continuous development programmes aimed at enhancing the skill of the collective Board and assist the Board in its strategic focus and that of the NLC were rolled out quarterly.

The Board is satisfied that the arrangements in place for accessing professional corporate governance services are effective as members are subscribed to the Corporate Governance Body of Knowledge® and are full members of the IoDSA, the South African Institute of Chartered Accountants (SAICA), Law Society of South Africa and The Public-Sector Committee Forum.

Governance structure

The Board reviewed its approach and arrangements for delegation to promote independent judgement and assist with the balance of power and the effective discharge of duties without abdicating its accountability. Delegation arrangements were in accordance with the Lotteries Act, as amended, which stipulates that the Board may appoint committees to assist it in efficiently and effectively performing its functions and exercising its powers. Committees consist of such members of the Board as the Board may designate, with the Board appointing the Chairperson of every committee. Every committee performs its functions in accordance with the provisions of this Act and such directives of the Board that are not in conflict with such requirements. Any delegated function so performed shall be deemed to have been performed by the Board.

As such, the Board comprised six committees, which included two statutory committees and five standing committees as depicted below:

Board evaluation and effectiveness

The independent Board and Board Committee effectiveness for the year under review is underway. The outcomes and recommendations from the review will be considered for implementation by the Board.

Company Secretary

The Board reviewed and were satisfied that the skills, competence and experience of the Company Secretary adequately support the performance of the required duties of the Board and that the office of the Company Secretary is empowered, with the position carrying the necessary authority. The Company Secretary is not a member of the Board and has unfettered access to the Board while maintaining an arm’s-length relationship with the Board and its members. The NLC Board comprises five members. In terms of the Board charter, the Board must meet at least four times a year. During the financial year ended 31 March 2021, the Board met 40 times. The table below shows the attendance at these meetings:

Review Committee

Overview

The Review Committee is established in terms of Section 26H of the Lotteries Act. The Committee is chaired by the Chairperson of the NLC Board and reviews decisions of the Distributing Agency concerning applications for grants, only on application by an aggrieved applicant in the manner prescribed: Provided that such review shall be adjudicated by a Board Committee set up for such purpose without delay.

If the Board overrules the decision of the Distributing Agency, the Board may either order the Distributing Agency to re-evaluate the application, taking into consideration matters raised by the Board or set aside the decision of the Distributing Agency and substitute it with an order the Board deems appropriate.

Outcomes

The number of review applications upheld demonstrates consistency and fairness in the application of regulations relating to applications for grants, related policies and guidelines by the DAs.

Membership and attendance

Board Review Committee compises five members. During the financial year ended 31 March 2021, the Board Review Committee convened on four occasions.

BOARD AND DISTRIBUTING AGENCY COMMITTEE

Overview

The Lotteries Act, as amended, stipulates that Chairpersons of the DAs may only attend meetings of the Board per invitation or if matters relating to the adjudication of applications for grants or distribution of grants are to be discussed.

In view of provisions stipulated in section 3(1)(d) of the Lotteries Act and the nature of matters for discussions, the Board and DA Committee was constituted to deal with DA matters relating to the adjudication of applications for grants and the operations of the DAs as matters relating to the grant funding mandate of the NLC.

The Committee considered the funding priority areas for the ensuing year. It provided oversight of activities of the operations division, particularly the number of grant applications received, performance against legislated timeframes, monitoring and evaluation methodology and outcomes and funding implemented under Section 2A of the Lotteries Act (please see page 93 for more information).

Outcomes

During their engagements the Committee reviewed it’s Charter and policy framework. The Committees oversight over the Operations Division and Distributing Agencies ensured NLC’s strategic objectives and related outcomes were achieved. The Committee continues to ensure the efficient and effective performance of the NLC through the Operations Division as well as ensure the fair and equitable distribution of funds through independent and objective adjudication.

The Committee noted negative media reports as a result of the identified risk of conflicting beneficiaries and well as misunderstanding of the Pro-Active Funding model. The NLC’s funding model as ensured that the NLC fulfils its mandate of equitable distribution and addressed identified priorities in our communities. (Refer to Operations Report and Performance highlights)

The Committee was satisfied that it had performed all the functions required by its mandate and approved work plan.

Membership and attendance

The Committee comprises four members and the Chairpersons of the DA. In terms of Board and DA Charter, the Committee must meet at least four times a year. During the financial year ended 31 March 2021, the Committee convened on seven occasions.

During their engagements the Committee reviewed it’s Charter and policy framework. The Committees oversight over the Operations Division and Distributing Agencies ensured NLC’s strategic objectives and related outcomes were achieved (icons refer to Operations Report, Performance Highlights). The Committee continues to ensure the efficient and effectively performance of the NLC through the Operations Division as well as ensure the fair and equitable distribution of funds through independent and objective adjudication.

The Committee was satisfied that it had performed all the functions required by its mandate and approved work plan.

Regulatory Compliance and Legal Committee

Overview

The Regulatory Compliance and Legal Committee is a Committee charged with the duty to ensure that the Board advises the Minister on issuing the licence to conduct the National Lottery as well as ensure that the National Lottery and sports pools are conducted with all due propriety and strictly in accordance with the Constitution, the Lotteries Act, all other applicable law and the licence for the National Lottery together with any agreement pertaining to that licence. The Committee is also expected to provide assurance to the Board that the NLC is fulfilling its primary regulatory mandate, that is to ensure that the interests of every participant in the National Lottery are adequately protected.

Outcomes

The Board Regulatory Compliance Committee comprises of six members. In terms of Board Regulatory Compliance and Legal Charter, the Committee must meet at least four (4) times a year. During the financial year ended 31 March 2021, Committee convened on six (6) occasions. The table below shows the attendance of these meetings.

Compliance with laws and regulations

The Board recognises the role that compliance with applicable regulatory requirements plays in the governance and sustainability of the Commission and undertakes to subscribe to fundamental principles to ensure compliance with relevant legislation. In discharging its duties of ensuring that the Commission complies with legislation, the Board has committed that the Commission shall conduct its business in accordance with applicable regulatory requirements and ensure that appropriate policies and frameworks are committed to, promoting a culture of compliance within the NLC. The Board Regulatory Compliance and Legal Committee is charged with a duty to ensure organisational compliance is maintained at an acceptable level and ensure that all instances of non-compliance are adequately followed up and resolved with sound and practical business recommendations.

Organisational compliance monitoring was conducted, whereby Act owners (divisional liaisons where the Act is applicable) provided controls and processes with which the NLC ensures compliance with the requirements of relevant Acts. These controls and procedures were assessed for correctness and validity through corroboration of supporting documents such as reports, policies, matrices, etc., and through enquiry with the relevant Act owners.

Continuous monitoring of organisational compliance takes place every quarter and as determined by the organisational compliance and governance unit to ensure that the NLC maintains acceptable levels of compliance with these critical pieces of legislation.

Policies developed internally were also subjected to alignment by oversight committees, including the Board, to ensure that they do not conflict with laws and regulations relevant to the NLC. Organisational processes and operations were carried out in such a way as to ensure compliance with applicable legislation in the areas of grant funding, lotteries compliance and enforcement, human resources management, financial management, as well as information and communication technology.

There were no material or repeat regulatory penalties, sanctions or fines for non-compliance with statutory obligations, and there were no environmental regulator inspections conducted during the period.

The Committee was satisfied that the NLC has complied with primary legislation governing the public entity, which are the Lotteries Act, as amended, and the PFMA. Other applicable laws and regulations were complied with during the year under review.

Membership and attendance

The Committee comprises six members. In terms of the Board Regulatory Compliance and Legal Charter, the Committee must meet at least four times a year. During the financial year ended 31 March 2021, the Committee convened on six occasions. The table below shows the attendance at these meetings:

BOARD HUMAN CAPITAL, SOCIAL AND ETHICS COMMITTEE

Overview

The Board Human Capital, Social and Ethics Committee is constituted to ensure that the NLC has a clearly articulated recruitment and remuneration philosophy and the design and implementation of remuneration structures that are market related, consistent, fair, legally compliant and equitable and the Board fulfils functions relating to its social and ethical environment, transformation objectives and employment equity as contemplated in relevant legislation and best practice.

Outcomes

Click here to see our human capital discussion and the remuneration report to follow.

Membership and attendance

The Board Human Capital, Social and Ethics Committee comprises of four members, including the chairperson. In terms of Board Charter, the Committee must meet at least four times a year. During the financial year ended 31 March 2021, Committee convened on seven occasions. The table below shows the attendance of these meetings.

Ethics management

At the NLC, we aim to grow and preserve relationships of trust with our stakeholders by conducting our business ethically and protecting the public funds (received from the operator and distributed to NPOs for good causes) against fraud and corruption. We believe that leadership based on ethical foundations results in a culture of ethical and moral behaviour and compliance with laws, rules, codes and standards. The Board exercised its responsibility to establish and maintain a culture of honesty, transparency, fairness, responsibility and accountability to position the NLC as regulator and funder of choice. Our internal stakeholders are guided by policies that facilitate ethical decision-making during the ordinary course of business. The offering of favours to gain unfair commercial advantages is strictly prohibited.

The composition of the Human Capital, Social and Ethics Committee is included on even page of the same report. The Committee meets quarterly and during the current financial year met as outlined above.

During the current financial year, the Committee focused on and monitored NLC’s activities with respect to several matters including workplace, employee wellness, environment, preferential procurement and B-BBEE.

The NLC employees are guided by the ethics and conduct policy and gift and donations policy (code). An abridged version of this is included in all suppliers’ contracts, grant agreements and the National Lottery operator licence. These stakeholders are expected to abide by the same level of ethics. The NLC code is available on the NLC intranet for all employees to access.

The ethics office rolled out quarterly organisational ethics interventions and subsequently considered findings or outcomes of these initiatives. The code was reviewed and approved by the Board during March 2020. In the coming financial year, the NLC will continue implementing its ethics strategy, which will be aligned with the NLC sustainable business strategy. The NLC did not incur any fines during the year.

All divisions and business units attended organisation-wide interventions, and interventions utilised the themes indicated below.

In the case that a Distributing Agency member being an employee or serving on the Board or equivalent governing body of an applicant for NLDTF, the application from that applicant will be referred to another DA for adjudication. The table of interests declared by the respective Distributing Agency members is indicated on page 160 of the report.

In the period under review, Board members and employees lodged their disclosures of interest, and no material conflicts of interest were identified.

Gift declarations
In terms of the donations policy, employees are required to electronically disclose all gifts received from suppliers, from any person who received a grant or intends to apply or has applied in terms of section 13, for a licence to conduct the National Lottery. The ethics office recorded a total of 15 gifts during the period, broken down as follows:

Health, safety and environmental issues

The NLC places the utmost importance on the health and safety of its employees and the public. The Committee was satisfied with the assurance of the compliance division and internal audit that the Commission complied with all the applicable health, safety and environmental laws and regulations. A building condition survey, which included fire rationale and detection, electrical networks reticulation, ceiling condition, internal and external air quality testing, air-conditioning/HVAC condition and hydrocarbon testing, as well as water quality sampling was undertaken to evaluate the compliance of NLC head office.

To comply with the provisions of the Occupational Health and Safety (OHS) Act to provide for the health and safety of personnel, visitors, consultants and contractors, the NLC has an approved OHS policy and OHS implementation plan. An OHS Committee was appointed in line with the Act to monitor and foster compliance on health and safety issues and recommend appropriate steps to be taken to address risks and threats. Adherence to the Act has been monitored through a compliance register and risk register, which are presented to the Board periodically.

Energy-saving, light switching systems were successfully installed. The Board approved the acquisition of provincial office accommodation, and the Committee is looking forward to the green initiatives that will emanate from these acquisitions. During the period under review, there were no fatalities and eight minor injuries were recorded. The NLC has appointed Safety, Health and Environment (SHE) representatives, of which 100% attended SHE representative functions training.

Social responsibility

The NLC’s core objectives speak to the promotion of social upliftment. Social responsibility is therefore an inherent part of the NLC’s daily activities. Furthermore, in support of being catalysts for social upliftment, employees voluntarily donated and participated in several initiatives driven by the office of the Commissioner.

BOARD NOMINATIONS COMMITTEE

Overview

The Board Nominations Committee was established to ensure that the Board comprise of the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibility objectively and independently.

Outcomes

The Committee developed the Board’s code of conduct as well as code of ethics policies to enhance ethical leadership within the organisation. An independent Board skills review was commissioned, and the process of enhancement of the Board’s skills and capacity initiated.

Membership and attendance

The Board Nominations Committee comprises of six members, including the chairperson. In terms of Committee Charter, the Board must meet at least twice a year. During the financial year ended 31 March 2021, the Committee convened on six occasions. The table below shows the attendance of these meetings.

BOARD AUDIT AND RISK COMMITTEE

The Audit and Risk Committee (“the Committee”) is established as an independent statutory committee in terms of the Public Finance Management Act (PFMA). The Committee functions within approved terms of reference and complies with relevant legislation, regulation and governance codes.

The Committee submits this report for the financial year ended 31 March 2021, as required by Treasury Regulation 27.1.10 issued in terms of Sections 76(4)(d) and 77 of the PFMA.

REPORT OF THE AUDIT AND RISK COMMITTEE

The Audit and Risk Committee (“the Committee”) is established as an independent statutory committee in terms of the Public Finance Management Act (PFMA). The Committee functions within approved terms of reference and complies with relevant legislation, regulation and governance codes.

The Committee submits this report for the financial year ended 31 March 2021, as required by Treasury Regulation 27.1.10 issued in terms of Sections 76(4)(d) and 77 of the PFMA.

Audit and Risk Committee Membership

The Committee consists of three Independent Members and is chaired by Ms Doris Dondur.

The Committee is required to meet at least four times per annum as per its approved terms of reference. 14 ordinary meetings and six special meetings, (Which special meetings dealt principally with Treasury Regulation requirement 27.1.9, that the audit committee must have explicit authority to investigate matters within its powers, as defined in the written terms of reference (Section 8.5: Investigation of the Committee’s approved terms of reference), were held for the financial year ended 31 March 2021.

Audit And Risk Committee Responsibility

The Audit and Risk Committee reports that it is satisfied that it has complied with its responsibilities as outlined in Sections 76(4)(d) and 77 of the PFMA and Treasury Regulation 27.1.10. The Committee also reports that it has adopted and reviewed formal terms of reference as its Audit Committee charter and has discharged all its responsibilities as contained therein.

Special Board Meeting and Workshops include

• Special Meeting (AFS Approval, National Lottery Participant Trust Workshop)
• Board Policy Review Session
• Investigation Reports
• Mainly 2020/2021 External Audit matters

A summary of the responsibilities discharged is as follows, with the detail of the specific sections after the summary:

The effectiveness of internal controls

The PFMA requires the Accounting Authority to ensure that the organisation has and maintains effective, efficient and transparent systems of financial, risk management and internal control, whilst it is the Committee’s role to review the effectiveness of internal controls and oversee risk management. Reviews on the effectiveness of the internal controls were conducted and they covered financial, operational, compliance and risk assessment.

In line with the PFMA, Internal Audit provides the Committee and management with reasonable assurance that the internal controls are appropriate and effective. This is achieved by evaluating internal controls to determine their effectiveness and efficiency, and by developing recommendations for enhancement or improvement. The Committee’s review of the findings of the Internal Audit work, which was based on the enterprise risk assessments conducted, revealed certain control weaknesses, in mitigating those risks mainly on:

• ICT environment and
• Procurement processes not in accordance with supply chain management and National treasury prescripts.

These control weaknesses were brought to the attention of the Management team.

Through the Committee’s analysis of the Internal audit reports and engagement with the management team, the Committee reports that the system of internal controls for the period under review was inadequate with room for improvement around ICT environment and supply chain management and to reduce the risk to an acceptable level.

The quality of the quarterly management reports

The Audit and Risk Committee has reviewed the quarterly management reports and is satisfied with the quality thereof.

Enterprise risk management

The Enterprise Risk Management (ERM) function has in consultation with the Committee, embarked on a multi-year journey to implement an integrated risk approach, adapting the key learnings from the King IV Report on Corporate GovernanceTM for South Africa, 2016, COSO ERM Framework 2017 and the ISO 31000 Standards.

The Committee is satisfied with the scope and direction taken by ERM to ensure the organisation develops and implements an appropriate integrated and proactive risk management approach, consistent with the needs, mandate and strategy of the organisation and designed to strengthen decision making capabilities at all levels of the organisation. The committee is satisfied with the management of key risks and progress on implementation of mitigation plans to manage risks to an acceptable level, except for the following critical risks that are outside the control of the organisation but have a bearing on the NLC’s operations and execution of its mandate and strategy, namely:

• Ineffective shareholder relations.
• failure to timely recommend the appointment of the 4th national lottery license operator; and
• ineffective succession management for the Board and members of the Distribution Agency.

As part of integrated reporting and to compliment and improve risk management, the organisation has adopted a Combined Assurance Model with the objective of providing a basis for identifying areas of potential assurance gaps by bringing identified specific level of assurances to ensure that all risk gaps are dealt with accordingly. The Committee is satisfied with:

• The level of assurance received; and
• That there were no assurance gaps or duplication of efforts by assurance providers.

The effectiveness of internal audit

Internal Audit is responsible for reviewing and providing assurance on the adequacy and effectiveness of the internal control environment across all the significant areas of the organisation and its operations.

The Committee is responsible for ensuring that the organisation’s internal audit function is independent and has the necessary resources, skills, standing and authority within the National Lottery Commission to enable it to discharge its responsibilities effectively. The Internal Auditors have unrestricted access to the Committee.

The Committee reviews and approves the Internal Audit Plan annually. Internal audit’s activities are measured against the approved internal audit plan and the Chief Audit Executive tables progress reports in this regard to the Committee.

In the year under review, the Internal Audit Activity developed and implemented a risk based strategic and operational coverage plan in accordance with the IIA standards and the Internal Audit Methodology. This coverage plan was approved by the Committee and quarterly reviewed. The table below summarises the internal audit overall opinion for the financial year ended 31 March 2021 which was determined based on the audit results for the financial year under review:

The Audit and Risk Committee is satisfied that Internal Audit has properly discharged its functions and responsibilities in the year under review. Internal audit has undertaken a quality assessment review performed by independent firm and has achieved a Generally Conforms rating to the International Standards for The Professional Practice of Internal Auditing.

Even with this rating a number of significant improvement opportunities were identified in 2020/21 financial year, mainly relating to the management of and quality assurance of audit engagements. A Partially Confirm overall rating was consequently achieved in the following series of International Internal Audit Standards:

• 2000 – Managing the Internal Audit Activity
• 2100 – Nature of Work
• 2300 – Performing the Engagement
• 2400 – Communicating the results

The outcome of file reviews also received a partially Conform rating.

The Committee is quarterly monitoring the implementation of and the resolution of the findings related to this Quality Assessment Follow Up Review and progress has been made in this regard.

Evaluation of Financial Statements

The Committee reviewed the Annual Financial Statements of the organisation and is satisfied that they comply with the applicable Accounting Standards and that the accounting policies used are appropriate. The Annual Financial Statements were reviewed with the following focus:

• Significant financial reporting judgements and estimates
• Clarity and completeness of disclosure and whether disclosures made have been set properly in context;
• Changes in the Accounting Policies and Practices;
• Significant adjustments resulting from the Audit;
• Compliance with accounting standards and legal requirements;
• Explanation for the accounting treatment adopted;
• Reasons for year-on-year fluctuations;
• Asset valuations and revaluations; and
• Re-assessment of the useful life of the assets.

The review of the Annual Financial Statements and the Annual Report for the 2020/21 Financial Year was done at the Committee’s meeting held on 21 February 2022.

External audit: Auditor-General South Africa

The Committee noted the terms of the Auditor -General South Africa’s engagement letter, audit strategy and audit fees in respect of the 2020/21 financial year.

The Committee also monitored the implementation of the action plans to address matters arising from the Management Report issued by the Auditor-General South Africa for the 2019/20 Financial Year.

The external audit process for the financial year ended 31 March 2021 was particularly long and the reasons for this is accurately detailed in the Chief Financial Officer’s report. The Committee confirms that it was kept informed as to the progress made with the external audit process and the challenges; on a regular basis and by all involved. The Committee extends its appreciation to particularly the Chief Financial Officer for the efforts made to reach resolution on the numerous areas of audit process challenges. The entire NLC management team assisted the Chief Financial Officer tirelessly and professionally.

The Audit Committee has also had several in committee meetings with the Auditor-General of South Africa.

The Committee concurs and accepts the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the audited annual financial statements be accepted and read together with the report of the Auditor-General South Africa.

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